Cairo — Egypt’s central bank raised its overnight interest rates on Thursday by 200 basis points (bps), a move some analysts said may indicate a currency devaluation is on the way.
The bank hiked the lending rate to 22.25% and the deposit rate to 21.25%, its Monetary Policy Committee said in a statement.
Most analysts did not expect a hike. The median forecast in a Reuters poll of 16 analysts was for the central bank to hold rates steady. Six analysts expected a hike of between 100 and 300 basis points.
“The hike is likely coming ahead of a EGP devaluation and the announcement of an expanded IMF deal,” said Monica Malek of Abu Dhabi Commercial Bank.
Egypt has been in talks for the last two weeks with the International Monetary Fund to revive and expand a $3 billion loan agreement signed in December 2022.
IMF disbursements on the loan were put on hold last year after Egypt did not follow through on a pledge to let the Egyptian pound (EGP) respond to market forces and instead fixed it against the dollar in March.
Farouk Soussa of Goldman Sachs disagreed a devaluation was imminent. The rate hike “is the start of a process of policy tightening,” he said. But that “will take some time and must be supported by enhanced FX liquidity.”
The Egyptian pound, fixed at 30.85 to the dollar since March, has been trading on the black market as low as 71 pounds.
Egypt’s already weak economy was hit by the Gaza crisis, which dampened tourism and decreased shipping through the Suez Canal, a major source of foreign currency.
The MPC said growth fell to 2.7% in the third quarter of 2023 from 2.9% in the second and was expected to continue softening through June.
*Enas Alashray; Patrick Werr; editing: Chris Reese & Cynthia Osterman – Reuters
